Disney not too long ago reported its second quarter fiscal 2024 earnings, with the corporate’s Experiences (Parks & Resorts + Client Merchandise) reporting $8.3 billion in income. This covers the great & unhealthy of those outcomes as they relate to Walt Disney World & Disneyland, and why regardless of the robust efficiency for parks, CEO Bob Iger is warning buyers of an attendance slowdown…and what that really means.
Throughout the primary presentation, Disney CFO Hugh Johnston shared that this quarter’s progress was pushed by progress of Disney Cruise Line and Walt Disney World on the home aspect, with Hong Kong Disneyland outperforming among the many worldwide aspect. With regard to HKDL, this makes a variety of sense. Hong Kong is undoubtedly seeing lagged pent-up demand because it reopened slower, that means it has simpler comparisons from the final couple of years. Add the brand new World of Frozen to the combination, and HKDL is prone to outperform for the following few years. As that little park has struggled for thus lengthy, we like to see it doing so properly that it warrants mentioning on the earnings name.
Walt Disney World is the most important shock, as I imagine that is the primary earnings name in over a yr with it being talked about as a vivid spot. For the final a number of calls, Disneyland was outperforming and Walt Disney World was weakening. Now, the alternative is true. Johnston additionally indicated that Disneyland’s outcomes declined regardless of rising attendance and per-capita visitor spending, as a consequence of value inflation and better labor bills.
Trying ahead, Johnston additionally stated that though shoppers proceed to journey in file numbers and Disney remains to be seeing wholesome demand in consequence, the corporate is beginning to see some proof of a world moderation from peak post-COVID journey. He appeared pretty unfazed by this, noting that subsequent quarter received’t see a lot progress, however largely as a consequence of one-offs like Disney Cruise Line launches (Lighthouse Level and the brand new ships), with increased labor prices and the aforementioned post-pent-up demand normalization additionally taking part in a job.
Regardless of this and demand impacts, Johnston expects year-over-year Disney Experiences working revenue progress to rebound considerably within the fourth quarter as a consequence of “fewer comparability or timing components.” That doesn’t precisely sound like the corporate is worried in regards to the Parks & Resorts enterprise.
Nevertheless, through the Q&A, CEO Bob Iger struck a barely completely different tone. He was requested about his expectation for attendance after lapping COVID, and whether or not that may stabilize or soften into fiscal yr 2025. Particularly, whether or not traits can be ample to count on attendance to have any sort of year-on-year decline?
“By way of attendance, what we’re mainly speaking is relative to the post-COVID highs, issues are tending to normalize. The parks enterprise did 10% progress within the quarter. And clearly, that’s a particularly excessive income quantity. That stated, we nonetheless see within the bookings that we glance forward towards point out wholesome progress within the enterprise. So we nonetheless actually be ok with the alternatives for continued robust progress,” Iger defined.
“I actually really feel just like the Parks enterprise remains to be doing very, very properly. Clearly, we’ve obtained the very best within the enterprise when it comes to product. And folks nonetheless have a robust want to mainly go on trip and are available to see us.”
If all of this sounds acquainted, it ought to. This additionally isn’t the primary, second, and even third time the corporate has instantly addressed it and indicated that pent-up demand has been exhausted at a few of the parks. No, the parks usually are not lifeless or ghost cities or completely empty, however they’re down as in comparison with the peak of pent-up demand.
None of that is notably shocking. We’ve been documenting the slowdown in crowds at Walt Disney World, which began final yr following spring break. Nevertheless, that development reversed itself in early 2024! When the primary two months have been busier than anticipated, we began discussing Re-Revenge Journey at Walt Disney World in 2024. We’ve theorized there’s a second wave or reverberation of pent-up demand after each month final yr after January was down as in comparison with 2022.
These outcomes corroborate that, a minimum of partially. Walt Disney World outperformed in the latest quarter after being a laggard for the final year-plus. So why did Iger and Johnston make these feedback about declines and normalization because of the exhaustion of pent-up demand? Most probably as a result of the Parks & Resorts enterprise is much more than simply Walt Disney World.
As a reminder, that is one thing that dearly-departed CFO Christine McCarthy braced buyers for precisely this throughout the identical earnings name one yr in the past, in Might 2023: “Please take into account that within the again half of this fiscal yr, there can be an unfavorable comparability towards the prior yr’s extremely profitable fiftieth anniversary celebration at Walt Disney World. We usually see some moderation in demand as we lap these kinds of occasions, and third quarter-to-date efficiency has been consistent with these historic traits.”
That warning got here true, and Walt Disney World underperformed final yr as each different park continued to outperform. Executives largely attributed this to timing, indicating there was a drop in demand on the Florida parks at the same time as Disneyland and worldwide parks’ attendance stayed robust. This was as a result of Disneyland reopened a yr later than Walt Disney World. That together with each different vacation spot skilled delayed pent-up demand as in comparison with Walt Disney World, since Florida reopened earlier than…just about in every single place.
Now, the alternative seems to be occurring. Similar to Walt Disney World “lapped” the fiftieth at the moment final yr and was thus dealing with unfavorable comparisons proper as pent-up demand started exhausting itself, it has now as soon as once more lapped these weaker numbers and has simpler comps. In contrast, most of the different parks–together with Disneyland–discover themselves in the identical place that Walt Disney World was in a single yr in the past.
None of those numbers are static–they’re all relative to the prior-year, which is a time when Walt Disney World was doing “worse” (as in comparison with the yr earlier than that), whereas Disneyland and the worldwide parks have been doing “higher” (additionally as in comparison with the yr earlier than that). If we simply zoom out a bit, the image turns into prettier for all the parks.
In different phrases, don’t really feel too badly for Disney throughout these attempting instances of normalizing attendance and demand. Walt Disney World and each different vacation spot remains to be performing properly above pre-COVID ranges–with income, working revenue, and per visitor spending all up significantly at each vacation spot as in comparison with fiscal yr 2019.
That is beginning to normalize, as Disney has needed to pull extra “levers” to entice friends to go to. And by that, we largely imply higher reductions. As we’ve talked about repeatedly, Walt Disney World has pulled out the 2019 deal playbook for 2024. It’s mainly again to regular on the deal entrance, and most of those reductions have been launched sooner than regular by historic requirements, and supply higher financial savings than their counterparts from the final two years. Some are superior to 2018 or 2019, however baseline costs and perks have additionally modified since then.
It’s not simply room-only charges or Free Eating to drive up occupancy. Walt Disney World additionally introduced out the 4-Park Magic Ticket, V.I.PASSHOLDER Days, and extra in an try and give demand a shot within the arm and buoy bookings. Reductions accomplish that, however they usually achieve this on the expense of upper per visitor spending. Nonetheless, we’re speaking a couple of lower relative to the peak of pent-up demand in 2022–just about every little thing remains to be up significantly as in comparison with the 2019 baseline.
Finally, the ‘warnings’ of Disney CEO Bob Iger and CFO Hugh Johnston have been measured as a result of the state of affairs remains to be removed from dire for the Disney Parks. This can be painted as a five-alarm fireplace by these cheering for Disney’s downfall, however that’s not actuality. Particularly not at Walt Disney World when in comparison with final yr, which is what issues to most of you.
It’s nonetheless attainable the Florida parks are down this summer season as in comparison with final, however I wouldn’t guess on it. Anybody simply now overlaying declines at Walt Disney World is actually over a yr late to the celebration. That began in February 2023, grew to become actually noticeable in mid-April 2023, and continued for the rest of final yr. The month-to-month development in 2024 (minus April) has stabilized or elevated.
This yr, the slowdown goes to disproportionately happen at Disneyland and the worldwide parks (seemingly minus Hong Kong), as they have been slower to see pent-up demand arrive and are actually on the bottom of that. Regardless, a slowdown from unprecedented demand shouldn’t be a disaster, it’s a normalization. After all, Disney would’ve liked to keep up record-breaking numbers or that progress trajectory, however even internally, they knew a slowdown was on the horizon.
All of that is what we’ve been anticipating and hoping to see for some time. Pent-up demand lasted longer than anticipated, and admittedly, it was a distortion that had unhealthy penalties for the broader financial system (past Disney). Placing that within the rearview mirror could also be unhealthy for the corporate, however it’s good for shoppers and the nation as a complete.
I’m not a doomer greedy at straws on the lookout for Disney’s downfall, however truthfully, I hope that even Walt Disney World sees a decline (in attendance, income, per visitor spending–all of it!) within the quarters to come back. The numbers are nonetheless means up as in comparison with 2019, even assuming a wholesome progress trendline. Disney not doing record-breaking numbers whatever the guest-unfriendly selections they make–and as an alternative having to really compete for patrons and make optimistic adjustments–is an efficient factor!
Frankly, I don’t know why there’s this want to color that as a unfavorable, when it must be construed pretty much as good for shoppers and friends. As with the arrival of Epic Universe, evidently disgruntled former followers need to see Disney taken down a notch and are engaged in a variety of utterly unmoored wishful pondering. Whereas I’d welcome much more of a “normalization” to convey numbers nearer to 2019, I don’t need to see an excessive amount of of a drop. The very last thing the corporate wants earlier than the blockbuster D23 Expo is seeing unfavorable outcomes out of Parks & Resorts that spook them out of asserting plans for the $60 billion investments.
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YOUR THOUGHTS
What do you consider the Walt Disney Firm’s ‘warning’ that attendance goes to normalize within the post-pent-up demand setting? What about per visitor spending at Walt Disney World and Disneyland, or different theme park outcomes? Ideas on a slowdown at Walt Disney World or Disneyland? Predictions about different “levers” the corporate will pull to spice up demand and buoy bookings? Assume issues will enhance or worsen all through this yr? Do you agree or disagree with our evaluation? Any questions we might help you reply? Listening to your suggestions–even once you disagree with us–is each attention-grabbing to us and useful to different readers, so please share your ideas beneath within the feedback!
